Value or Marginal Cost and Price?

Carmela Chivers discusses Mariana Mazzucato's book The Value of Everything in Makers and takers.

If neoliberalism is dead, what should take its place?
In her new book, The Value of Everything, Mariana Mazzucato draws a roadmap to an alternative economic future — one that measures productive activity by the outcomes it generates rather than the money it makes.

In a brave and uncompromising take on the economic developments of the past forty years, Mazzucato calls out the shallow economics that allowed rent-seekers to proliferate and caused policy-makers to lose sight of the public interest. To change our economic system for the better, she says, economists need better tools to distinguish productive from unproductive activity. In other words, we need a new theory of “value.”

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The book is full of examples of how we’ve got this wrong. Three whole chapters are dedicated to the explosion since 1980 of the finance industry, which Mazzucato sees as more a value extractor than a value creator. And she shows how confusion about value has masked the real story of how value is created. Innovation is mistakenly seen as the result of a few smart inventors tinkering in their sheds, rather than a collaborative and iterative process, often supported by public funds.

The implications are large. Without a strong idea of what sort of activities are productive, policy-makers are at risk of being “captured” by stories of wealth creation. The policies that result (such as tight intellectual property laws) may favour incumbents, inhibit innovation and promote “unproductive” entrepreneurship.

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Mazzucato offers a glimpse of an alternative: a framework that puts value back at the heart of economics. Leaving behind the labour theory of the early economists, and moving beyond simply linking of value to prices, she suggests a new way of identifying productive activity: the notion that value comes from actions that promote the sort of economy and society we want.